Mergers & Acquisition
Integration Is Not A Four Letter Word
Last year witnessed the third highest recorded M&A activity, $3.7 trillion, falling short of the record (set in 2015) of $4.4 trillion. Following two highly active years for M&A, analysts believe 2017 is set to be another strong year as economic condition remain similar to 2016 and regulations are expected to reduce.
Along with record setting activity in mergers and acquisitions, a study by the Harvard Business Review reveals that “typically 70%-90% of acquisitions are abysmal failures.” Organizations are spending more time and resources identifying and pursuing M&A targets, but fail to realize the full value of that M&A. Focus quickly shifts to the next acquisition, and attention is not paid to integration. In order to get the most out of an integration, an organization should focus on four initiatives:
1. Define The Future By Understanding The Past
You don’t know where you are going if you don’t know where you started. During due diligence, focus is on the valuation and making sure the numbers work. Little attention is paid to the current state of people, processes, and tools that make up the acquired organization. As you begin to develop the integration plan, it is important to understand the organization’s current state going into the integration – both acquiring and acquired. Performing an analysis of the current state for both organizations allows you to build the integration plan with a clear understanding of today and makes you better prepared to build the integration plan.
Once you know where you are today you can more clearly define where you want to go and how you are going to get there. Following the current state mapping, you can begin to develop the future state design and create an integration plan that will be the roadmap for your team to follow. The integration plan should include regular checkpoints to review and confirm that targets and milestones are being met. These checkpoints will provide the chance to voice feedback of the process and align the teams on the future state.
2. Develop Clear and Consistent Communication
The current state is known, the future state is defined, and now it is time to inform the team of the next steps. Failing to clearly communicate the integration plan can lead to misunderstood targets, misaligned priorities and the potential loss of key personnel. Included in the integration plan should be a communications plan that will define:
- Who will send the communication
- When the communication will be sent
- What will the purpose of the communication be
It could be a message from the integration team leadership to critical personnel informing them of upcoming next steps, or an email from senior leadership to the broader team keeping them apprised of all that is happening in the organization. Lack of communication can lead to confusion in the office and potentially losing key personnel. Making sure the message is clear and consistently delivered to the teams will make personnel feel more at ease with the process and allow them to better understand the organization. Poor communication may derail the best integration plan and ruin the organization’s culture.
3. Retain The Culture You Want
No two organizations have the same culture – going into an acquisition it is important to understand this point. It is also important to understand that your culture may not be best for the future state organization. Similar to how you define the future state org structure, you should spend the same time defining the future state culture. Interview representatives from both organizations and gain the understanding on the positive and negative aspects of the current culture. Define the future state culture and build a plan to implement that culture across the organization with milestones and checkpoints. Implementing the right culture into the future state organization should be a top priority for the integration team. Ensuring this is completed should be a top priority for senior leadership.
4. Execute Against The Plan
All of the setup work is complete: the current state has been defined and the future state has been mapped, a communications plan is ready to be implemented, and you spent the time to determine the proper culture for the go-forward organization. Now you need to execute on that plan and push your teams to reach the targets set by leadership.
Execution begins with the implementation of a governance structure that corrals all of the resources and plans in a matter that allows leadership to respond promptly and decisively by either staying the course or pursuing a needed course correction. It’s important that leadership has an active role and assigns the proper resources in setting up the program.
Next, detailed project plans need to be developed to support those aggressive goals and timelines. You can’t build a house without a set of blueprints and you can’t execute a future state strategy without a fully developed project plan. This includes assigning appropriate resources, understanding the dependencies and risks and linking actions directly to desired benefits. Who is involved in leading initiatives is important – you have identified your top talent, now is the time to reward some of them with leadership roles in the integration. These individuals should have the ability to drive their teams to reach the targets and maintain the support of senior leadership should they run into a roadblock.
Finally, as I said before, you don’t know where you are going if you don’t know where you started. The same applies here: defining benefits upfront and then tracking them post-execution is the ultimate measure of success. Monitoring the benefits will also help in subsequent acquisitions because it provides documented evidence of the risks and realistic benefits of the integration. Target to goal is a metric that each team, division, department, etc. should be familiar with and should be able to speak to when requested.
Applying focus to these four initiatives will help drive the success of the integration. Organizations should include in their due diligence planning time to begin mapping out the future state of the combined organization. This effort will result in increased value in the short-term, and greater success in the long-term.